China Agribusiness Report Q2 2009

Jan. 28, 2010 - PRLog -- In the China Agribusiness Report for Q2 2009 we introduce the new Business Environment section.

This section gives an overview of agriculture in China and its significance to the overall economy and labour market. We discuss the industry's key sectors including non-food agricultural products such as cotton, for which China is the world's largest producer, but also the largest importer. We also cover government support given to agriculture in the country.

China's slowing growth – the report is now forecasting 2009 growth of 5.6% year-on-year, down from 13.0% in 2007 and 9.0% in 2008 - could see some changes in food consumption over the coming year. We expect the trend towards falling consumption in China's food grain staples of rice and wheat to see a slight reversal in 2009 as consumers slow their uptake of more expensive foods such as meat. Over the longer term, however, we do not expect the current slowdown to alter the trend towards falling consumption of the old staples.

Production of these key staples has also been slowing and over our forecast period to 2013 we expect rice production to fall slightly and wheat production growth to drop to 5.8% from 17.4% over the previous five-year period. The government is worried about the state of its farm sector and the low wages in rural areas, particularly now millions of migrant workers are reportedly heading back to their homes as jobs in the cities dry up. In October 2008 and January 2009, the government announced large raises of between 13% and 17% in the minimum support prices paid to farmers for wheat and rice.

The government has also said that it will ramp up work to improve infrastructure in rural areas, with the construction of better roads and improving utility supplies. A programme to subsidise the purchase of household appliances such as televisions and refrigerators has been set up to improve living standards in rural areas. The government is also trying to stem the decline in the area of farmland, which has come under increasing pressure from urbanisation and industrialisation.

Apart from the desire to protect food security, the Communist Party also realizes that ensuring the health of the agricultural sector and improving living standards in rural areas is vital to the future stability of the country and thereby its grip on power. With average incomes in rural areas now less than a third of average incomes in the cities and agriculture still employing 40% of the labour force, if growth in the countryside were to fall further behind growth in urban areas, the Party could find itself with hundreds of millions of disgruntled rural dwellers to deal with.

For this reason we expect the health of agriculture to stay near the top of the government's agenda over the coming years and support for farmers to continue. One of the key concerns following a scandal-hit year in 2008 will be guaranteeing the safety of Chinese produce. This will go hand in hand with efforts to continue improving productivity in the sector.

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